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Fitch Downgrades U.S. Credit Rating: How Could it Affect Your Retirement Plans?

fitch ratings downgrade

Fitch Downgrades U.S. Credit Rating: How Could it Affect Your Retirement Plans?

On August 2nd, 2023, credit ratings agency Fitch downgraded the United States from a AAA – their highest rating – to AA+. This move comes after months of talk that began back in January of this year during the debt ceiling crisis and continued even after Congress came to an agreement to raise the government’s borrowing limit this Spring.

“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” said the ratings agency in a statement.

Although Treasury Secretary Janet Yellen called the move “arbitrary and based on outdated data,” it makes sense that credit ratings agencies would advise investors to be wary of U.S. debt; debt ceiling battles over the past several years have repeatedly brought the government to the brink of financial default. Resolutions to the most recent debt ceiling battles have come only after the debt ceiling had already been reached, forcing the Treasury to take what they call “extraordinary measures” to keep the government funded. This type of financial mismanagement has unfortunately become characteristic of political maneuvering over the past decade, leaving investors around the world to wonder about the long-term health of the U.S. economy.

The Consequences of a Credit Rating Downgrade

Historical examples can help predict the fallout of Fitch’s credit rating downgrade. The only other time a ratings agency has downgraded the United States’ credit rating was in 2011, when Standard & Poor’s cut the U.S. down to a AA+ rating – again in response to a protracted debt ceiling battle. Back then, stocks plummeted in response, causing securities-based retirement investors to lose untold value from their portfolios. Some of those who planned on retiring that year were likely forced to change their plans, delay retirement, or accept a lower standard of living in retirement.

Indeed, major stock market indices experienced a decline on August 2nd, the day of Fitch’s announcement. Although they rebounded slightly over the next week, that spike was followed by a continued slide. The yield on the benchmark U.S. Treasury note also fell 2 basis points and U.S. stock futures dropped in European trading. While it is still too soon to see the long-term impact of Fitch’s credit rating downgrade, it is safe to say that foreign and domestic investors will be taking a close look at their risk exposure. Fitch’s downgrade could also lead other credit ratings agencies to reexamine their own ratings for the U.S. government and U.S.-based institutions.

Protecting Your Investments

Those who invest in securities-based financial vehicles like stocks, bonds, and mutual funds have to worry about a host of economic and political concerns, from credit rating downgrades to debt ceiling battles and more. Fortunately, there are alternative investments that exist outside the securities industry and are not susceptible to the same perils that affect traditional investors. These Crash Proof Vehicles are not only guaranteed to prevent the loss of your principal investment during a stock market crash, they also credit interest at rates similar to securities-based investments, and once that interest is credited, it becomes part of your principal and can never be lost.

These revolutionary financial vehicles are designed to create a guaranteed income stream for retirees that can’t be affected by stock market performance.  If you would like to know more about how the Crash Proof Retirement System can create a guaranteed income stream for your retirement, get in touch with our team today by calling 1-800-722-9728 and setup a recorded meeting with one of our licensed independent educators at our King of Prussia, PA headquarters who will show you all the advantages of Crash Proof Vehicles and how they can fit into your retirement plan in Wayne, PA and communities around the country.

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